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2018 (2) TMI 497 - AT - Income TaxPenalty u/s 271C - assessee had failed to deduct TDS on interest paid on FDRs and to deposit the same - Held that - The assessee cannot be considered as having done willful neglect for non-compliance of the TDS provisions. This is just a technical mistake and, accordingly, the assessee cannot be held to be an assessee in default and no penalty can be imposed. This is clear from the fact that the moment this descrepancy was highlighted by the AO, the assessee immediately deposited the short deducted amount with the Revenue. From the above, it is evident that the assessee was visited with reasonable cause beyond its control leading to the alleged default. The mistake occurred because of a software updation error, the Revenue is compensated by paying the interest as well as due taxes by the payee. Therefore, there is no loss to the Revenue in the matter. Moreover, the Branch Manager will personally have no interest in non-deduction/ short deduction/ lower deduction of some of the customers of the Branch. Hence, this is an unintentional mistake and, accordingly, no penalty provisions should get attracted. Accordingly, the assessee is found to have had reasonable cause for not deducting the tax at source. The penalty levied is, accordingly, deleted. - Decided in favour of assessee.
Issues Involved:
1. Confirmation of penalty under section 271C of the Income Tax Act. 2. Calculation of penalty on interest paid on FDR without reasonable cause. 3. Voluntary deposit of short deduction/non-deduction/lower deduction by the assessee. 4. Compliance by the assessee before finalization of the order. 5. Justification of penalty on a banking company branch. Issue-wise Detailed Analysis: 1. Confirmation of Penalty under Section 271C: The primary issue is whether the CIT(A) erred in confirming the penalty of ?4,25,420 under section 271C of the IT Act. The assessee argued that there was a reasonable cause for the failure to deduct TDS on interest paid on FDRs, which prevented them from acting like a person of average intelligence and ordinary prudence. The CIT(A) confirmed the penalty, stating that the assessee did not produce any evidence of a software error or human error that caused the PANs of some customers to escape consideration for TDS deduction. Therefore, no reasonable cause was established for the failure to deduct and deposit TDS. 2. Calculation of Penalty on Interest Paid on FDR: The assessee contended that the penalty was calculated without appreciating the existence of a reasonable cause as contemplated under section 273B. The CIT(A) dismissed this argument, noting that the assessee did not provide any evidence of the alleged software or human error during the proceedings. The CIT(A) held that the provisions of section 273B were not applicable, and the penalty under section 271C was justified. 3. Voluntary Deposit of Short Deduction/Non-Deduction/Lower Deduction: The assessee argued that they voluntarily deposited the amount of short deduction/non-deduction/lower deduction as soon as it came to their notice. The CIT(A) acknowledged this but maintained that the failure to comply with section 194A was undisputed and that the reasonable cause for the failure was not proven. Therefore, the voluntary deposit did not absolve the assessee from the penalty. 4. Compliance Before Finalization of the Order: The assessee claimed that they deducted and deposited the amount of tax before the finalization of the order and made all necessary compliances. The CIT(A) did not find this argument sufficient to waive the penalty, as the reasonable cause for the initial failure was not established. 5. Justification of Penalty on a Banking Company Branch: The assessee, being a branch of a banking company, argued that there was no reason to deduct tax at a lower or NIL rate, and hence the penalty was unjustified and bad in law. The CIT(A) dismissed this argument, stating that the assessee failed to prove any reasonable cause for the failure to deduct TDS as per section 194A. Additional Evidence and Remittance: ITA No. 66/Agra/2017: For the assessment year 2013-14, the assessee appealed against the demand of ?2,54,335 under sections 201(1) and 201(1A) of the Act. The CIT(A) confirmed the demand in the case of ISKON accounts due to the non-submission of necessary documents. The assessee later provided additional evidence, including certificates of 12A, exemption documents, income tax returns, and financial statements of ISKON. The Tribunal remitted the matter to the CIT(A) for fresh consideration in light of the new evidence, ensuring due opportunity for the assessee to present their case. Conclusion: The appeal for ITA No. 65/Agra/2017 was allowed, and the penalty under section 271C was deleted, recognizing the reasonable cause for non-deduction of TDS due to a software error. ITA No. 66/Agra/2017 was allowed for statistical purposes, with the matter remitted to the CIT(A) for fresh consideration based on additional evidence. Order Pronouncement: The order was pronounced in the open court on 25/01/2018.
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